The South Korean Won also fell 1.8 percent following the announcement, made this morning at 12 noon Pyongyang local time.

The sudden drop in shares stems from fears about the stability of the region following Jong-il's death; a potential consequence of the leadership transition in North Korea.

South Korean companies are not the only ones that might be affected by Jong-il's death, with Japan's Nikkei shares average also falling to a three-week low.

"The risk or fear that the death of Kim Jong-il will lead to provocation from North Korea is pressuring selling," said Hiroyuki Fukunaga, chief executive of Tokyo-based Investrust. "Right now, there's going to be a sell off as part of a risk off", he added.

Japan's finance minister Jun Azumi also expressed concern over the drop, saying that he was monitoring the financial market after the news.

He added that the news has put regional powers on edge over the potentially tumultuous leadership transfer, as the countries collapsing economy, and nuclear ambitions could pose a big threat to north-east Asia.

The Eurozone financial crisis has already been causing instability in stocks, and has been pushing down the price of commodities under the pressure.

Gold, often considered a safe asset in unsteady financial times dropped 0.7 percent this week. The Euro also fell 0.5 percent.

With credit downgrades anticipated in Europe, it's a bad time for further instability.

The U.S. Dollar on the other hand saw a rise following the news. It jumped up 0.5 percent against the Yen.